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Dollar Store News article #3
THE BUCK SHOPS HERE
Dollar stores, once the domain of lower-income households, are reaching out to
-- and snagging -- higher-income customers
Sunday, December 05, 2004
By Ronette King
Business writer
Steve Dooley is a modern sort of guy taking care of himself in a modern retail
way.
A part-time graduate student who works two part-time jobs to support himself,
he's a regular shopper at the Family Dollar store on South Carrollton Avenue,
cruising the aisles among the college students and working moms.
"Can you believe that? Me, a guy, doing that?" Dooley said, chuckling at the
thought. But he's outfitted his shotgun house with things found there, such as
the television stand and the plastic bowls stuffed into his shopping basket one
recent day.
Dooley has a lot of company these days. Dollar stores, which long have been
found in rural America and economically depressed areas of cities, have in
recent years popped up in the suburbs and more middle-class areas of urban
centers.
In short, they've gone upscale -- at least a little. Instead of catering almost
solely to households with incomes of $30,000 or less, they increasingly are
reaching for SUV-driving soccer moms and graduate students such as Dooley. They
have been taking over the spiritual space left by the long-gone five-and-dime
stores, offering a dizzying variety of merchandise at low prices.
"They're the greatest invention since sliced bread for the shopper," said Kurt
Barnard, of Barnard's Retail Consulting Group, which forecasts and tracks retail
industry trends and consumer-spending patterns.
Dollar-store executives like to point to a recent A.C. Nielsen survey that found
that 48 percent of households with incomes less than $30,000 shopped at a dollar
store last year. That's not surprising, but the same survey found that nearly
half of households with incomes greater than $70,000 also had shopped at a
dollar store in the past year. That reflects an increasing acceptability of
dollar stores among more affluent customers.
Anatomy of the dollar store
Dollar stores, or "small-format value retailers" in industry parlance, have $2
bottles of kitchen cleaner, $1 birthday party tchotchkes, $5 plastic storage
bins and rows of everyday essentials ranging from health and beauty aids to
ketchup. The stores are compact, topping out at about 15,000 square feet. That's
about the size of a new Walgreens pharmacy and about a quarter the size of
today's typical 55,000- to 60,000-square-foot grocery store.
They appeal to customers who might not want to traipse across a huge store and
its accompanying parking lot just to pick up a few items.
"They tend to fill a void that's been created in the market as Wal-Mart and
Target have created bigger store formats," said David Mann, retail analyst at
Johnson Rice & Co. in New Orleans.
And they appeal to customers who don't mind buying stuff cheap. Dollar stores
got their name because lots of items sell for $1. In fact, one chains sells most
everything for $1.
The best way to identify a dollar store: It probably has the word "dollar" in
its name. The three big chains, all of which operate in the New Orleans area,
are Dollar General Corp., based in Goodlettsville, Tenn.; Family Dollar Stores
Inc. of Matthews, S.C.; and Dollar Tree Stores Inc. of Chesapeake, Va.
And independents have popped up, many of them also in uptown areas and suburbs.
Donnie Briley figures that besides his Dollar Stop store in the reasonably
affluent suburb of Mandeville, he can count four other dollar stores within a
few miles.
Still, he said, the déclassé appeal of dollar stores sometimes is a hard sell to
the middle class.
"Some people wouldn't be caught dead in here," Briley said. "But for the most
part, people love it. Young men, women, girls, everybody."
One reason dollar stores have been a hard sell: A shopper who walked into one a
few years ago may have walked right out after seeing rows stocked entirely with
off-off-brand items, if they had names at all. But increasingly, dollar stores
are stocking familiar names that make the affluent more comfortable.
"As the channel has grown, the larger consumer-products manufacturers have been
much more willing to sell to them," Mann said. That means shoppers can find
goods from Procter & Gamble, Johnson & Johnson, Hershey Foods and General Mills
in their local dollar store alongside lesser-known brands of toothpaste, candy
and cereal.
"National brand merchandise instills more confidence in the consumer," said Adam
Bergman, spokesman for Dollar Tree. "They recognize a Hershey bar as opposed to
a generic chocolate bar."
The dollar store chains have doubled sales and added more than 7,000 stores in
the past five years, according to consulting firm Retail Forward. Annual sales
for the group leapt to $39.5 billion in 2003, from $29.4 billion in 1998, up 34
percent.
Chain differences
Even though dollar stores may seem identical to a casual passerby, each chain is
a bit different and has a different strategy. And even though they generally are
happy to reach into more affluent areas, they aren't abandoning the lower-income
zones.
Dollar General, already established in rural areas, is moving to more densely
populated suburban markets. The company has sights on higher-income households,
that other half of households with incomes greater then $70,000 that still
hasn't shopped a dollar store.
Dollar Tree is more focused on shoppers with annual household incomes just less
than $50,000, leading the company largely to suburban locations. The chain's
customers are "Middle America shoppers who don't have enough in their wallet to
afford 30 rolls of paper towels but know they ran out this morning, or don't
have to buy a 30-gallon cauldron of mayonnaise to get a good price," Bergman,
the spokesman, said.
At Dollar Tree stores, everything in the place, from paper plates to dry
noodles, sells for a buck.
Family Dollar is targeting low- and lower-middle-income customers, which company
executives point to as one of the fastest-growing sectors of the U.S.
population.
And each chain is trying to introduce consumers to the dollar store idea at the
same time each strives to set itself apart from the competition, a task Dollar
General CEO David Perdue concedes can be difficult.
"Many people confuse the companies within the dollar channel," Perdue said at
the Johnson Rice conference held in New Orleans recently. "There are basically
two models: the $1-only price-point stores versus our model."
About a third of the merchandise at Dollar General is priced at $1 or less. The
remainder is priced at multiples of $1.
Dollar General opened 558 stores this past year and closed 78, and has a total
of 7,180 stores in 30 states.
The majority of merchandise at both Dollar General and Family Dollar is priced
under $10. But Family Dollar also takes advantage of special prices on goods
from suppliers that aren't routinely available.
"We also carry a larger percentage of basics, things that are carried 52 weeks a
year as opposed to opportunistically purchased goods that might be in the store
one week and not be in the store another week," Family Dollar Executive Vice
President George Mahoney said.
Family Dollar stores range from about 7,500 to 9,500 square feet so they fit
into neighborhoods where their core customers live. Average annual sales per
store are about $1 million, company executives said. The average transaction
size was $8.95 last year.
Location, location, location
Family Dollar is pursuing an urban strategy, placing stores in underserved
markets as well as the suburbs. Those areas have fewer retailers operating
there, Mann of Johnson Rice said.
Urban stores can be challenging to operate but produce the highest level of
sales and strong returns, executives said.
New Orleans is part of that urban initiative. Family Dollar opened its first
stores in Louisiana in 1983 and now operates 201 stores in the state. There are
20 Family Dollar stores in the New Orleans area, including nine in New Orleans.
Another store is under construction in the 4300 block of Downman Road in eastern
New Orleans. The company is looking at five additional locations but isn't ready
to announce them.
To increase average sales and customer visits, both Dollar General and Family
Dollar are adding coolers to their stores to sell grocery items such as bread,
milk, eggs and some frozen foods. Shoppers who come in to get items from the
cooler pick up additional merchandise, Dollar General's Perdue said.
Dollar Tree is the smallest chain, with 2,646 stores, but has the widest
geographic reach, operating in 48 states. That includes 13 stores in the New
Orleans area among the company's 50 stores in Louisiana.
The chain adds 200 to 250 stores and expands 100 to 125 stores each year.
Better-selling categories are party goods, greeting cards, gift wrap and
batteries, Bergman said.
Dollar Tree stores mostly are located in suburban areas and can be built in
retail space abandoned by other retailers. But the company has tweaked its
location strategy in recent years. Dollar Tree stores originally were small
spaces located near high-traffic mass merchants or grocery stores that brought
customers to their door, Mann said. The company has experienced some growing
pains as those co-tenants close or relocate.
An example of that is the Dollar Tree store on Clearview Parkway that had been
in the same strip with Wal-Mart. But when the Arkansas retailer built a new
Supercenter on Jefferson Highway, Dollar Tree lost its customer draw. A larger
Dollar Tree now is open nearby, in part of the space that Wal-Mart left behind.
This store is more in line with the company's new stores that span 10,000 to
15,000 square feet and are a destination in themselves.
If imitation is a sincere form of flattery, the dollar stores are being
sincerely flattered: Some other retailers are responding to the dollar stores by
adding sections or aisles of merchandise priced at $1.
But Dollar General's Perdue doesn't see that as a threat.
"We haven't seen traffic deteriorate at stores because of it," he said. "We
believe that's adding credibility."
. . . . . . .
Ronette King
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